(BFM Bourse) – The mining group is losing ground on the Paris Stock Exchange after lowering its annual production targets for manganese in Gabon and nickel in Indonesia, ahead of its quarterly publication scheduled for October 24.
The corporate publication season in Paris has officially begun with several disappointments. The luxury giant LVMH plunges on the Paris Stock Exchange after delivering disappointing activity for the third quarter, in a context of a marked slowdown in demand in China.
It is also the economic situation in China which forced Eramet to issue a warning. Ahead of its quarterly publication scheduled for next week, the mining group took the lead and was forced to revise its annual production targets for manganese in Gabon and nickel in Indonesia.
On the Paris Stock Exchange, Eramet is under pressure after these adjustments. The stock plunged 17.36%, to 58 euros around 10:10 a.m. and showed the biggest drop on the Paris market. According to Reuters, this is also its largest daily decline since August 30, 2023.
A degraded market context
Eramet justifies this adjustment by particularly degraded market conditions for carbon steel in China, and by the delivery this week by the Indonesian authorities of a license to sell nickel ore “lower than expected”.
Concerning manganese, the French mining group says it encountered a “sharp decline in carbon steel production in China this summer” which “resulted in a sharp drop in ore purchases by Chinese producers of manganese alloys”.
In this context, Eramet deemed it appropriate to suspend ore production from its Gabonese Moanda mine for at least three weeks. The mining group adds that sales and shipments “will continue during this period”, and that the duration of this interruption will be adjusted “according to market developments”.
“This decision reflects a pronounced imbalance between on the one hand a sluggish demand from the Chinese steel sector and on the other a plethora of supply following the explosion of prices during the summer. Despite the announcement of “a powerful recovery plan by the Chinese authorities, the prices of high-grade ore continued to fall in October, down 20% on September and 55% on July records”, explain analysts at Oddo BHF.
As a result, Eramet is revising manganese ore sales volumes downwards and expects to produce between 6.5 to 7 million tonnes of manganese in 2024, compared to 7 to 7.5 million previously.
“In this context, Eramet’s decision seems to make sense to us and it should, combined with the absence of the main other player in high-grade ore Gemco until the end of the first quarter of 2025, lead to a rebound in prices,” continues the design office.
Administrative problems in Indonesia
For nickel, the mining group is also adjusting its ambitions, but this time for administrative reasons. Remember that Eramet has a joint venture alongside Tsingshan (43% for the French group and 57% by the Chinese company) which operates the largest nickel mine in the world at Weda Bay in Indonesia.
Due to the difficulties in obtaining these authorizations to increase its activity, Eramet has revised downwards its forecast for nickel ore sales, to 29 million wet tonnes compared to a range of 40 to 42 million wet tonnes previously. This announcement is “more unexpected”, reports Oddo BHF, to the extent that “the group had already lowered its objective in July to the lower end of the initial range of 40-50 million wet tonnes”, recall the analysts.
The decision by the Indonesian authorities could, according to the research office, “reflect Indonesia’s desire to curb the unbridled growth of mining production in the face of the risks of resource depletion and pollution.”
The mining group, however, assures that the drop in activity of its subsidiary Weda Bay “should be largely offset by a significant increase in ore premiums, a consequence of the limitation of domestic supply.”
Eramet and its partner Tsingshan take “note of this volume limitation” and plan to request a review of the operating permit for 2025 and 2026 in order to “gradually increase” production. The group still expects sales to increase to 60 million wet tonnes in the medium term. “Out of caution”, Oddo BHF prefers to revise downwards its volume assumptions for Weda Bay beyond 2024.
These announcements cast doubt on Eramet’s ability to meet all of its financial objectives for the year 2024. At the end of July, the mining group assured that it anticipated an improvement in its financial performance in the second half “thanks to an increase in price”, after suffering its first half-year loss since 2020. The group had even significantly raised its gross operating profit target, now expected between 1.2 and 1.3 billion euros in 2024. Verdict, Thursday 24 October then.
Sabrina Sadgui – ©2024 BFM Bourse
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